APRA’s superannuation tsar Margaret Cole said the performance test, introduced last year, was improving outcomes for members. In 2021, 13 funds failed.
“Pleasingly, almost 96 per cent of MySuper superannuation members are now in a performing MySuper product, equating to 13.1 million member accounts.
“Equally positive is that the performance test has contributed to over 5.1 million MySuper members (just over 38 per cent) now paying lower fees than they were last year,” Ms Cole said.
Failing funds pushed out
The performance test was a key plank of the former Morrison government’s sweeping superannuation reforms, which passed Parliament last June.
It was legislated against the backdrop of rapid consolidation in the $3.3 trillion superannuation sector, with the prudential regulator actively pushing small funds to merge.
The performance test has proven an effective way to push the worst funds out of the system. Of the 13 funds that failed last year, 10 have exited the system by merging with a better fund.
This includes three of the four funds who have now failed twice, including Westpac-owned BT, which is planning a merger with retail-giant Mercer.
The annual test evaluates how default MySuper products have performed over the past eight years, adjusted for fees, relative to a benchmark calculated by APRA.
The benchmark, which differs across funds, measures what a product should have returned over the past seven years based on its asset allocation and the average level of fees across the super sector.
Funds that underperform their benchmark by more than 0.5 percentage points are deemed to have failed.
Underperforming funds could be banned from accepting new members into their MySuper products if they fail the test again next year.
The new laws require the five funds that failed the test to send a standardised letter to their members telling them their super is sitting in a product that “has performed poorly”.
The letter tells members they can find a “well-performing” fund on the government’s YourSuper comparison tool, which launched last year.
The tool, which is accessible through MyGov and the Australian Taxation Office website, ranks default MySuper products by their annual performance over seven years and the fees charged to members.